Practical Considerations for Making Global Equity Grants

11/06/2009

The challenge in implementing equity-based compensation plans is maximizing employee value with minimum tax impact while limiting the detrimental effect such benefits may have on existing stockholders. In the United States, there are many methods for providing employees with equity-based compensation that provide maximum value to employees while minimizing stockholder impact. The most commonly used methods are awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, and stock purchase plans.1 Typically, these awards are subject to vesting requirements based upon either continued employment with the granting entity (or a member of its controlled group) or achievement of specific performance goals.

As our world continues to shrink and technology more efficiently connects employees located around the world, a simple grant of an equity award to an employee no longer remains simple. Even small employers have employees located around the world, often with only one or two employees in jurisdictions outside the United States. While the awards listed above may achieve the granting company’s goals in the United States, if even one employee is performing services outside of the United States, these awards may cause negative tax consequences to the employee and a detrimental impact to the granting company’s bottom line. However, with careful planning, many of these negative consequences can be minimized or even avoided.

Before designing any equity incentive award programs, employers should follow the steps discussed below in order to ensure that their plans meet the requirements of each relevant jurisdiction.

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